Here's how SIA Engineering's earnings can soar again

It should depend on GE90 engine shop visits.

UOB Kay Hian said an earnings recovery for SIA Engineering will largely depend on line maintenance growth and commencement of GE90 engine shop visits.

According to a report, which cited Aviation Week, the Asia Pacific region will lead in the surge for engine maintenance, repair, and overhaul (MRO) demand in 2018.

Aviation Week also stated that aircraft in the CFM-56 family (used on A320 and B737s), V2500 (used on A320s), GE-90-115B (B777s), and Rolls Royce Trent 700 will see the greatest number of checks in 2018.

Following problems with Rolls Royce Trent 1000 engine blades on the B787, the original equipment manufacturer (OEM) has offered upgrade solutions to select Trent 1000 engines including Scoot’s.

Flight Global also quoted Rolls Royce as saying that “ongoing maintenance will clearly have an effect on shop visits."

Consequently, SIAEC’s joint venture (JV) with Rolls Royce, Singapore Aero Engine Services Private Limited (SAESL), will thus benefit from more checks given that the Singapore unit is "a centre of excellence" for such checks.

Of the 600 or so Dreamliners in operation, about 40% use the Trent 1000 engines.

Net profit of this segment of SIAEC comprised 59% of total net profit and grew 16% YoY, but this was underpinned by non-engine MRO growth.

Engine MRO, which accounts for 50% of associate profits only grew by 3.7% YoY, driven primarily by PW4000 engine types and not the abovementioned engines. If the engine MROs for the aforementioned variants kick in, it would have a significant impact to bottom line.

Here's more from UOB Kay Hian:

Given Aviation Week’s prognosis for strong engine shop visits for the abovementioned engine types, we raise our assumption on associate and JV contribution for FY19 by 7.1%, factoring in higher engine MRO profits.

The JV and associate segment’s net profit is now expected to grow by 20.3% in FY19 vs 12.5% and 2.4% for FY18 and FY17 respectively.